Overview
The following were the significant events for the second quarter of 2014, each
of which is discussed more fully in later sections of this MD&A:
• Revenue increased approximately 8% from the prior year period; and

• We continued to experience significant growth in software-related revenue
(which we measure by combining software license and maintenance revenue,
software as a service (SaaS) revenue and professional services revenue
associated with software delivery).

We have established a focused and consistent business strategy targeted at
revenue growth, gross margin expansion, improved customer loyalty and employee
engagement. To execute this strategy, we incorporate three key imperatives that
align with our financial objectives for 2014 and beyond: deliver disruptive
innovation; focus on migrating to higher margin software and recurring services
revenue; and more fully enable our sales force with a consultative selling model
that better leverages the innovation we are bringing to the market.

Our strategy, which we continued to pursue in the second quarter of 2014, is
summarized in more detail below:
• Gain profitable share - We have been working to shift our business model to
focus on growth of higher margin software and services revenue, including
focusing our research and development efforts, changing and educating our
sales force and executing transformative acquisitions in each of our core
lines of business. At the same time, we are continuing our effort to optimize
our investments in demand creation to increase NCR's market share in areas
with the greatest potential for profitable growth, which include
opportunities in self-service technologies with our core financial services,
retail, and hospitality customers. We have focused on expanding our presence
in our core industries, while seeking additional growth by:

• penetrating market adjacencies in single and multi-channel self-service
segments;
• expanding and strengthening our geographic presence and sales coverage
across customer tiers through use of the indirect channel; and
• leveraging NCR Services and consumables solutions to grow our share of
customer revenue, improve customer retention, and deliver increased
value to our customers.
• Expand into emerging growth industry segments - We are focused on broadening
the scope of our self-service solutions from our existing customers to expand
these solution offerings to customers in emerging industry-vertical markets
including telecommunications and technology, travel and small business. We
expect to grow our business in these industries through integrated service
offerings in addition to targeted acquisitions and strategic partnerships.
• Build the lowest cost structure in our industry - We strive to increase the
efficiency and effectiveness of our core functions and the productivity of
our employees through our continuous improvement initiatives.
• Enhance our global service capability - We continue to identify and execute
various initiatives to enhance our global service capability. We also focus
on improving our service positioning, increasing customer service attach
rates for our products and improving profitability in our services business.
Our service capability can provide us a competitive advantage in winning
customers, and it provides NCR with an attractive and stable revenue source.
• Innovation of our people - We are committed to solution innovation across all
customer industries. Our focus on innovation has been enabled by closer
collaboration between NCR Services and our lines of business, and the
movement of our software development and professional services resources
directly into our various lines of business. We also have placed
responsibility for hardware engineering in our Integrated Supply Chain
organization, which is responsible for procuring the parts for, and
manufacturing, our hardware products. Innovation is also driven through
investments in training and developing our employees by taking advantage of
our world-class training centers. We expect that these steps and investments
will accelerate the delivery of innovative solutions focused on the needs of
our customers and changes in consumer behavior.

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• Enhancing the customer experience - We are committed to providing a customer
experience to drive loyalty, focusing on product and software solutions based
on the needs of our customers, a sales force enabled with the consultative
selling model to better leverage the innovative solutions we are bringing to
market, and sales and support service teams focused on delivery and customer
interactions. We continue to rely on the Customer Loyalty Survey, among other
metrics, to measure our current state and set a course for our future state
where we aim to continuously improve with solution innovations as well as
through the execution of our service delivery programs.

• Pursue strategic acquisitions that promote growth and improve gross margin -
We are continually exploring potential acquisition opportunities in the
ordinary course of business to identify acquisitions that can accelerate the
growth of our business and improve our gross margin mix, with a particular
focus on software-oriented transactions. We may fund acquisitions through
either equity or debt, including borrowings under our senior secured credit
facility.

In connection with executing this strategy, in July 2014, we announced a
restructuring plan to strategically reallocate resources to position NCR to
focus on our highest growth, highest margin opportunities in the software-driven
consumer transaction technologies industry. The program is centered on ensuring
our people and processes are aligned with our continued transformation and
include: rationalizing our product portfolio to eliminate overlap and
redundancy; end-of-lifeing older commodity product lines that are costly to
maintain and provide little to no return; moving lower productivity services
positions to our new centers of excellence due to the positive impact of
services innovation; and reducing layers of management and organizing around
divisions to improve decision-making, accountability and strategic execution.

NCR expects to incur a related pre-tax charge in the range of approximately $150
million to $200 million that will be included in income from operations, with
approximately $150 million recorded in 2014 and the remainder recorded in 2015.
The estimate includes both severance and asset related charges. The cash impact
of the restructuring plan is expected to be approximately $50 million in 2014
and $50 million in 2015. Annualized savings are expected to reach approximately
$90 million by 2016.
We expect to continue with these initiatives, including the restructuring plan,
for the remainder of 2014 and beyond, as we refine our business model and
position the Company for growth and profitability. Potentially significant risks
to the execution of our initiatives include the global economic environment and
its effect on capital spending by our customers, competition that can drive
further price erosion and potential loss of market share, geopolitical
instability in some of the countries in which we operate, difficulties
associated with introduction of products in new self-service markets, market
adoption of our products by customers, management and servicing of our existing
indebtedness, and integration of previously completed acquisitions.

Results from Operations
Three and Six Months Ended June 30, 2014 Compared to Three and Six Months Ended
June 30, 2013
The following table shows our results for the three and six months ended June
30:
Three months ended June 30 Six months ended June 30
In millions 2014 2013 2014 2013
Revenue $1,658 $1,535 $3,176 $2,945
Gross margin $480 $426 $896 $795
Gross margin as a percentage of
revenue 29.0% 27.8% 28.2% 27.0%
Operating expenses
Selling, general and administrative
expenses $247 $232 $492 $461
Research and development expenses 64 55 127 110
Income from operations $169 $139 $277 $224

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The following table shows our revenues and gross margins from products and
services for the three and six months ended June 30:

For the three months ended June 30, 2014 compared to the three months ended June
30, 2013, revenue increased 8% due to improvement in our financial services,
hospitality, and emerging industries lines of business. Digital Insight
generated $87 million of revenue in the three months ended June 30, 2014.
Foreign currency fluctuations unfavorably impacted the revenue comparison by 1%.
Our product revenue decreased 3% and our services revenue increased 18%
year-over-year. The decrease in our product revenue was due to declines in the
financial services, retail solutions, and emerging industries lines of business
in the Americas theater and declines in the retail solutions and emerging
industries lines of business in the AMEA theater partially offset by growth in
all lines of business in the Europe theater and growth in the financial services
line of business in the AMEA theater. The increase in our services revenue was
primarily attributable to increases in professional and installation services,
maintenance services and software as a service (SaaS). Services revenue
increased in all lines of business in the Americas and Europe theaters and
increased in the financial services and retail solutions lines of business in
the AMEA theater.

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For the six months ended June 30, 2014 compared to the six months ended June 30,
2013, revenue increased 8% due to improvement in our financial services,
hospitality, and emerging industries lines of business. Digital Insight
generated $163 million of revenue from the date of acquisition, January 10,
2014, through June 30, 2014. Foreign currency fluctuations unfavorably impacted
the revenue comparison by 1%. Our product revenue decreased 4% and our services
revenue increased 19% year-over-year. The decrease in our product revenue was
due to declines in the financial services and retail solutions lines of business
in the Americas theater and declines in the retail solutions and emerging
industries lines of business in the AMEA theater partially offset by growth in
the hospitality line of business in the Americas theater, growth in all lines of
business in the Europe theater, and growth in the financial services and
hospitality lines of business in the AMEA theater. The increase in our services
revenue was primarily attributable to increases in professional and installation
services, maintenance services and software as a service (SaaS). Services
revenue increased in all lines of business in the Americas, Europe and AMEA
theaters.

Gross Margin

Gross margin as a percentage of revenue in the three months ended June 30, 2014
was 29.0% compared to 27.8% in the three months ended June 30, 2013. Product
gross margin in the three months ended June 30, 2014 was 26.5% compared to 26.0%
in the three months ended June 30, 2013. Product gross margin in the three
months ended June 30, 2014 was negatively impacted by $1 million in higher
acquisition-related amortization of intangibles, or 0.1% as a percentage of
product revenue. Excluding this item, product gross margin increased primarily
due to a favorable sales mix. Services gross margin in the three months ended
June 30, 2014 was 30.9% compared to 29.4% in the three months ended June 30,
2013. Services gross margin in the three months ended June 30, 2014 was
negatively impacted by $6 million in higher acquisition-related amortization of
intangibles and positively impacted by $5 million in lower pension expense, or
0.1% as a percentage of services revenue. Excluding these items, services gross
margin increased due to a favorable mix of revenues, including an increase in
SaaS revenues.

Gross margin as a percentage of revenue in the six months ended June 30, 2014
was 28.2% compared to 27.0% in the six months ended June 30, 2013. Product gross
margin in the six months ended June 30, 2014 was 25.7% compared to 25.3% in the
six months ended June 30, 2013. Product gross margin in the six months ended
June 30, 2014 was negatively impacted by $3 million in higher
acquisition-related amortization of intangibles, or 0.2% as a percentage of
product revenue. Excluding this item, product gross margin increased primarily
due to a favorable sales mix. Services gross margin in the six months ended June
30, 2014 was 30.1% compared to 28.5% in the six months ended June 30, 2013.
Services gross margin in the six months ended June 30, 2014 was negatively
impacted by $12 million in higher acquisition-related amortization of
intangibles and positively impacted by $10 million in lower pension expense, or
0.2% as a percentage of services revenue. Excluding these items, services gross
margin increased due to a favorable mix of revenues, including an increase in
SaaS revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $247 million, or 14.9% as a
percentage of revenue, in the three months ended June 30, 2014 as compared to
$232 million, or 15.1% as a percentage of revenue, in the three months ended
June 30, 2013. Selling, general and administrative expenses in the three months
ended June 30, 2014 included $6 million of acquisition-related costs, $14
million of acquisition-related amortization of intangibles, $1 million of OFAC
and FCPA related legal costs, and $1 million of pension costs. Selling, general,
and administrative expenses in the three months ended June 30, 2013 included $14
million of acquisition-related costs, $8 million of acquisition-related
amortization of intangibles, and $3 million of pension costs. Excluding these
items, selling, general and administrative expenses remained relatively
consistent as a percentage of revenue.

Selling, general and administrative expenses were $492 million, or 15.5% as a
percentage of revenue, in the six months ended June 30, 2014 as compared to $461
million, or 15.7% as a percentage of revenue, in the six months ended June 30,
2013. Selling, general and administrative expenses in the six months ended June
30, 2014 included $20 million of acquisition-related costs, $28 million of
acquisition-related amortization of intangibles, $2 million of OFAC and FCPA
related legal costs, and $1 million of pension costs. Selling, general and
administrative expenses in the six months ended June 30, 2013 included $30
million of acquisition-related costs, $14 million of acquisition-related
amortization of intangibles, $1 million of OFAC and FCPA related legal costs,
and $5 million of pension costs. Excluding these items, selling, general and
administrative expenses remained relatively consistent as a percentage of
revenue.

Research and Development Expenses

Research and development expenses were $64 million, or 3.9% as a percentage of
revenue, in the three months ended June 30, 2014 as compared to $55 million, or
3.6% as a percentage of revenue, in the three months ended June 30, 2013.
Research and development expenses were $127 million, or 4.0% as a percentage of
revenue, in the six months ended June 30, 2014 as compared to $110 million, or
3.7% as a percentage of revenue, in the six months ended June 30, 2013. The
increase in both periods is in line with management expectations as we continue
to invest in broadening our solutions.

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Interest and Other Expense Items

Interest expense was $46 million in the three months ended June 30, 2014
compared to $26 million in the three months ended June 30, 2013. Interest
expense increased in the three months ended June 30, 2014 primarily as a result
of interest payable on the Company's senior unsecured notes. Other expense, net
was $3 million in the three months ended June 30, 2014 and June 30, 2013. Other
expense, net in the three months ended June 30, 2014 primarily included losses
from foreign exchange contracts not designated as hedging instruments, foreign
currency fluctuations and bank fees. Other income, net in the three months ended
June 30, 2013 primarily included losses from foreign currency fluctuations.

Interest expense was $89 million in the six months ended June 30, 2014 compared
to $47 million in the six months ended June 30, 2013 primarily as a result of
interest payable on the Company's senior unsecured notes. Other expense, net was
$10 million in the six months ended June 30, 2014 compared to other expense, net
of $1 million in the the six months ended June 30, 2013. Other expense, net in
the six months ended June 30, 2014 primarily included losses from foreign
exchange contracts not designated as hedging instruments, foreign currency
fluctuations and bank fees. Other expense, net in the six months ended June 30,
2013 primarily included losses from foreign currency fluctuations, partially
offset by a gain on the sale of an investment.

Provision for Income Taxes

Income tax provisions for interim (quarterly) periods are based on an estimated
annual effective income tax rate calculated separately from the effect of
significant or unusual items. Income tax expense was $29 million for the three
months ended June 30, 2014 compared to $23 million for the three months ended
June 30, 2013. The increase in income tax expense was primarily driven by an
increase in earnings. Income tax expense was $33 million for the six months
ended June 30, 2014 compared to $25 million for the six months ended June 30,
2013. The increase in income tax expense was primarily driven by the one-time
benefit of approximately $16 million included in the six months ended June 30,
2013 in connection with the American Taxpayer Relief Act, which was partially
offset by an increase in discrete benefits in the six months ended June 30,
2014.
NCR is subject to numerous federal, state and foreign tax audits. While NCR
believes that appropriate reserves exist for issues that might arise from these
audits, should these audits be settled, the resulting tax effect could impact
the tax provision and cash flows in future periods.

Revenue and Operating Income by Segment

The Company manages and reports its businesses in the following four segments:

• Financial Services - We offer solutions to enable customers in the
financial services industry to reduce costs, generate new revenue streams
and enhance customer loyalty. These solutions include a comprehensive line
of ATM and payment processing hardware and software; cash management,
video banking and customer-facing digital banking software; and related
installation, maintenance, and managed and professional services. We also
offer a complete line of printer consumables.

• Retail Solutions - We offer solutions to customers in the retail industry
designed to improve selling productivity and checkout processes as well as
increase service levels. These solutions primarily include retail-oriented
technologies, such as point of sale terminals and point of sale software;
an omni-channel retail software platform with a comprehensive suite of
retail software applications; innovative self-service kiosks, such as
self-checkout; as well as bar-code scanners. We also offer installation,
maintenance, managed and professional services and a complete line of
printer consumables.

• Hospitality - We offer technology solutions to customers in the
hospitality industry, serving businesses that range from a single store or
restaurant to global chains and sports and entertainment venues. Our
solutions include point of sale hardware and software solutions,
installation, maintenance, managed and professional services and a
complete line of printer consumables.

• Emerging Industries - We offer maintenance as well as managed and
professional services for third-party computer hardware provided to select
manufacturers, primarily in the telecommunications industry, who value and
leverage our global service capability. Also included in the Emerging
Industries segment are solutions designed to enhance the customer
experience for the travel and gaming industries, such as self-service
kiosks, and the small business industry, such as an all-in-one point of
sale solution. Additionally, we offer installation, maintenance, and
managed and professional services.

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Each of these segments derives its revenues by selling products and services in
the sales theaters in which NCR operates. Segments are measured for
profitability by the Company's chief operating decision maker based on revenue
and segment operating income. For purposes of discussing our operating results
by segment, we exclude the impact of certain items (described below) from
segment operating income, consistent with the manner by which management reviews
each segment, evaluates performance, and reports our segment results under
accounting principles generally accepted in the United States of America
(otherwise known as GAAP). This format is useful to investors because it allows
analysis and comparability of operating trends. It also includes the same
information that is used by NCR management to make decisions regarding the
segments and to assess our financial performance.

The effect of pension expense and other significant, non-recurring items on
segment operating income have been excluded from the operating income for each
reporting segment presented below. Our segment results are reconciled to total
Company results reported under GAAP in Note 13, "Segment Information" of the
Notes to Condensed Consolidated Financial Statements.

In the segment discussions below, we have disclosed the impact of foreign
currency fluctuations as it relates to our segment revenue due to its
significance during the quarter.

Financial Services Segment
The following table presents the Financial Services revenue and segment
operating income for the three and six months ended June 30:
Three months ended June 30 Six months ended June 30
In millions 2014 2013 2014 2013
Revenue $900 $782 $1,694 $1,496
Operating income $137 $95 $240 $152
Operating income as a percentage of revenue 15.2% 12.1% 14.2% 10.2%

We completed the acquisition of Digital Insight on January 10, 2014. As a
result, the revenue and operating income results for the Financial Services
segment include the impact of Digital Insight from January 10, 2014. Digital
Insight generated $87 million and $163 million of revenue and $27 million and
$50 million of operating income in the three and six months ended June 30, 2014,
respectively.

Financial Services revenue increased 15% in the three months ended June 30, 2014
compared to the three months ended June 30, 2013. Financial Services revenue
increased 13% in the six months ended June 30, 2014 compared to the six months
ended June 30, 2013. The increase in both periods was driven by growth in
product sales and services revenue in the Europe and AMEA theaters and growth in
services revenue in the Americas theater, which includes the impact of the
Digital Insight business, partially offset by declines in product sales in the
Americas theater. Foreign currency fluctuations had an unfavorable impact on the
three and six months ended revenue comparison by 1% and 2%, respectively.

Operating income increased in the three months ended June 30, 2014 compared to
the three months ended June 30, 2013 and in the six months ended June 30, 2014
compared to the six months ended June 30, 2013. The increase in both periods in
operating income was driven by a higher mix of software revenue and the
contribution of the Digital Insight business as noted above.

Retail Solutions Segment
The following table presents the Retail Solutions revenue and segment operating
income for the three and six months ended June 30:
. . .